$1,561 2Q 2024
-6.2%
91.1% 2Q 2024
140 BASIS POINTS
6,366 [YTD: 10,882]
7,128 [YTD: 15,940]
QUARTERLY DEMAND
QUARTERLY COMPLETIONS
In the first half of 2024, Austin experienced strong multifamily demand, with renters absorbing over 10,800 units. This surge in demand is primarily driven by robust economic growth and inbound migration, especially to suburban areas like Georgetown-Leander and Southeast Austin, which offer lower rents and high-quality amenities, accounting for 30% of the quarterly absorption.
Austin’s multifamily market contains over 31,900 units under construction as of mid-2024. Development activity is concentrated in urban core areas like East Austin (3,137 UC) and Downtown (2,548 UC), as well as suburban areas like Norh Austin (3,323 UC), and Northeast Austin (3,393 UC). By the end of the second quarter of 2024, 15,940 units have already been delivered, with an additional 9,300 units expected to be completed by year-end. This positions 2024 as the peak of unit deliveries in this cycle, which will continue to exert downward pressure on occupancies and rents in the near term.
The narrative in Austin remains unchanged as an unprecedented influx of new supply continues to pressure occupancy rates lower each consecutive quarter, a trend that began in 2022. As of the second quarter of 2024, average occupancy in stabilized buildings (excluding lease-up properties) has fallen 140 basis points to 91.1%. However, it is important to note that while the influx of new supply has driven the recent narrative, demand has been robust in recent quarters, particularly in suburban areas like Georgetown-Leander and Southeast Austin. These areas benefit from accessibility, affordability, and growing job opportunities, indicating market resilience and a likely bounce back in fundamentals once the supply overhang is absorbed by renters.
Despite most Austin submarkets showing annual declines in occupancy rates, Riverside, Downtown Austin, and Hill Country posted positive year-over-year changes. Far North Austin and Caldwell County reported strong occupancy levels above 95%, highlighting varied submarket performance. Favorable demographics and proximity to employment hubs support ongoing development, though high borrowing costs have slowed new starts, potentially stabilizing vacancy rates by 2025.
In the first half of 2024, Austin’s rental market experienced a significant decline in effective rents, with an annual decrease of 6.2% in the second quarter, bringing the average monthly rate for new leases down to $1,561. The primary cause is the influx of new units across the Austin metro. Over the past two years, the market has seen a sustained increase in new stock, with more than 27,000 units added in just the past 12 months. This compares to the absorption of 13,600 units during the same period, marking one of the widest margins between annual net deliveries and annual net absorption in the market’s history.
Owners of Class A assets are facing the most intense competition, resulting in weakened pricing power. Every submarket in Austin is experiencing declining effective rents, ranging from a modest contraction of -0.5% in Central Austin to a steep decline of -9.0% in the Buda-Kyle submarket.
Average Monthly Mortgage Payment
Average Monthly Rent
Through June 2024, the total value of individual conventional multifamily transactions in Austin, TX, reached approximately $558.6 million, representing a 46% decrease compared to the same period the previous year. The number of properties traded also saw a significant decline, dropping by 55% with only 12 properties sold. Private buyers have been the primary drivers of acquisitions this year, while institutional buyers have largely sat on the sidelines, making up only 6.1% of the buyer market in Austin this year, compared to the five-year average of 29%. However, recent major acquisitions by KKR and Blackstone suggest that institutional players might be ramping up their acquisition plans in the coming quarters. Both firms have indicated a belief that the multifamily market has likely reached a bottom, hinting at a potential increase in institutional investment soon.
*Most Active Buyers and Sellers are based on the sale volume of apartment units.
* Trailing 4Q average PPU
* Preliminary Data from RCA – Individual transaction $2.5M +
|
Under 35 Years
|
35 to 44 Years
|
45 to 54 Years
|
55 to 64 Years
|
65 to 74 Years
|
75 to 84 Years
|
85 Years & over
|
|---|---|---|---|---|---|---|
|
1.5%
|
-0.5%
|
-0.8%
|
-0.6%
|
0.1%
|
0.1%
|
0.1%
|
The group of renters under 35 years old is the fastest-growing segment in the Austin metro area since the pandemic, with a 1.5% increase from 2019 to 2022. This trend points to an escalating demand for rental properties that appeal to younger Americans.
Despite cooling fundamentals over the past two years, Austin’s multifamily market continues to experience healthy demand driven by economic vigor and a thriving job market. At the close of the first half of 2024, nearly 32,000 housing units were under construction, more than double the pre-pandemic average. So far this year, close to 16,000 units have been delivered, with another 9,346 units expected to be completed by year-end. This influx is likely to pressure occupancy and rents for the remainder of the year.
However, declining occupancy rates, stringent underwriting standards, and rising capital costs have led many developers to shelve projects over the past year. Construction starts slowed substantially from 11,400 units in the first half of 2023 to 1,800 units in the first half of 2024. This slowdown provides much-needed breathing room for demand to catch up with supply, likely materializing by mid to late 2025. By then, the dynamic is expected to shift, with demand applying upward pressure on rents and occupancy.
